Data from the stock market regulator showed global funds increased purchases of Indian equities last week. The rupee also advanced on speculation such funds would increase holdings after Reliance Power Ltd., the company that raised $3 billion last month in country's biggest initial public sale, said it will issue free shares to compensate investors for the stock's slump the day it started trading on February 11.
The rupee will benefit from the positive trend in stocks, said Sudarshan Bhatt, chief currency trader at state- owned Corporation Bank in Mumbai. Equity market sentiment is better across the region and Reliance Power's move to offer bonus shares is positive news for stocks and the rupee.
The rupee rose 0.2% to 39.97 per dollar at the 5 pm close in Mumbai, from 40.05 on February 22, according to data compiled by Bloomberg.
The Bombay Stock Exchange's Sensitive Index, or Sensex, added 1.7% on Monday, the most since February 15. The MSCI Asian index rose 1.3%. Funds based abroad bought local shares worth $336.5 million more than they sold last week, compared with net sales of $408 million in the five days through February 15, according to the Securities and Exchange Board of India.
Reliance Power would issue three shares for every five held, chairman Anil Ambani said on Sunday. The company's share price rose 8% on Monday.
The government, facing slowing growth for the first time in three years, will try to maintain the economy's pace without fueling inflation, President Pratibha Patil said.
India's benchmark bonds rose the most in more than a month on speculation yields near the highest in seven weeks attracted investors. The 2017 securities pared losses from last week as banks and securities firms increased purchases after yields gained, said S Ananthanarayan, chief bond trader at Kotak Mahindra Bank Ltd. Yields climbed the most in 10 months last week on concern inflation will accelerate.
There's some buying going on after yields rose sharply in the past week, Mumbai-based Ananthanarayan said.
The yield on the 7.99% notes due July 2017 fell 7.5 basis points, or 0.075 percentage point, to 7.62% at the 5:30 pm close in Mumbai, according to the central bank's trading system. The fall on Monday was the most since January 22.
The price of the security rose 0.50, or 50 paise per 100 rupee face amount, to 102.45.